National Association of Estate Planners and Councils

August, 2014 Newsletter
Provided by Leimberg Information Services

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Lorraine New on a Portability Opportunity: Not a 706 EZ But Close!

“There is no EZ Form 706.  However, Internal Revenue Bulletin 2012-28, Treasury Regulation Section 20.2010-2T, and now the latest 706 Form and instructions indicate that items passing to the surviving spouse or charity are given special treatment.

While an executor filing Form 706 must list all assets at their date of death values and support the value used, the latest Form 706 and its instructions now indicate that when a form is filed for portability purposes alone, and the entire asset passes to the spouse or charity, only the description of the asset needs to be listed on the schedule. On each schedule, it states 'If you are not required to report the value of an asset, identify the property but make no entries in the last four columns.' This timesaver does not apply if there is a partial disclaimer or partial qualified terminable interest property election, or if the value of the property passing relates to or affects the value passing to another recipient or to determine the estate’s eligibility for Code sections 2032, 2032A, 6166, etc.”

 

We close the week with Lorraine New’s commentary on Form 706 and instructions.

Lorraine F. New, of the law firm George W. Gregory PLLC of Troy, Michigan, retired as an IRS Estate and Gift Tax Manager for the state of Michigan.  She is on the Probate and Estate Planning Council of the State Bar of Michigan and serves on the Michigan Institute of Continuing Legal Education Probate and Estate Planning Advisory Board.  She is a frequent contributor and speaker about estate and gift tax issues, and has been quoted in the Wall Street Journal.

Now, here is Lorraine’s commentary:

COMMENT:

Portability has been described as the most important change to estate planning since the QTIP (Qualified Terminable Interest Property) in the 1980s.  It allows a legally married couple to “share” their total exclusion amount and not lose it.   We call the threshold dollar amount a decedent has to have before his or her heirs are required to file an estate tax return (Form 706) the “applicable exclusion amount,” and this year that amount is $5.34 million.  That exclusion amount can be used for taxable gifts during lifetime or, whatever has not been used, to transfer assets at death without tax.

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 introduced the concept of portability, effective for decedents dying after 2010.  The American Taxpayer Relief Act of 2012 made it permanent.  While originally a $5 million dollar exclusion, it has grown because of annual inflation increases, which means a legally married couple can share $10.68 million dollars of exclusion if a complete and accurate return is filed, within the nine month deadline, and a possible 6 month extension.

Because the concept of portability was new, not every eligible estate filed on time, and many requests for extension of time to file were sent in, but denied.  After Windsor v. United States570 US 12 (2013), the IRS issued Ruling 2013-17, 2013-38 I.R.B. 201, which treats a same sex spouse as a spouse for tax purposes if the marriage was valid in the state where the parties were married.  Same sex spouses can elect portability, and can file claims if gifts to spouses resulted in gift tax, or assets passing to spouses resulted in estate tax.  Furthermore, the IRS granted an extension of time until December 31, 2014, to estates of decedents dying in 2011, 2012 and 2013 to elect portability if they were not required by the size of their assets to file a Federal estate tax return, in Revenue Procedure 2014-18, 2014-7 I.R.B. 513. 

This means that those with eligible estates who did not file for portability within the original time frame, as well as same sex couples, who desire to do so, can elect portability by December 31, 2014 for deaths after December 31, 2010 before December 31, 2013.  Private Letter Ruling 201421002, dated January 14, 2014, provides that a letter ruling request to extend time to file for portability is also available if  “The estate discovered its failure to elect portability after the due date for making the election.”

There is no EZ form 706.  However,  Internal Revenue Bulletin 2012-28, Treasury Regulation Section 20.2010-2T, and now the latest 706 form and instructions indicate that items passing to the surviving spouse or charity are given special treatment.

While an executor filing Form 706 must list all assets at their date of death values and support the value used, the latest form 706 and its instructions now indicate that when a form is filed for portability purposes alone, and the entire asset passes to the spouse or charity, only the description of the asset needs to be listed on the schedule. On each schedule, it states “If you are not required to report the value of an asset, identify the property but make no entries in the last four columns.”   

This timesaver does not apply if there is a partial disclaimer or partial qualified terminable interest property election, or if the value of the property passing relates to or affects the value passing to another recipient or to determine the estate’s eligibility for Code sections 2032, 2032A, 6166, etc. Statutes on the portability returns do not toll and the values provided on the return can be changed by the IRS for a period of years not ending until the portability amount is used by the surviving spouse and the statute on that return tolls.  Records and support need to be kept in order to verify the calculation of the “Deceased Spousal Unused Exclusion Amount,” or “DSUE.”

Two and a half million Americans die each year, and 40% are married.  Fewer than 2000 will have to file an estate tax return, but almost a million could file for the sole purpose of portability.  Now is a one time opportunity for survivors of spouses who died from 2011-2013 to consider or rethink their choice not to file a return for portability, and by the end of this year.  And IRS has made it a lot easier for them to do so.

Our firm was recently asked to review a Federal Estate tax return, Form 706.  It had no values on any of the schedules, no value as of the date of death, no alternative valuation date value and no per share value for stocks and bonds.  

There were no attached appraisals or anything else that might suggest a value. The recapitulation of value (Part 5) did not refer to any of the attached schedules.  This is only logical because none of them had any values.  

At first blush, this appeared to be incomplete. There was an estimated value on line 10 labeled “estimated value of assets.”  Part 6 was for the DSUE election.  This was new. Was it correct? 

It was right.  It was not incomplete. The 706 was prepared in accordance with Treasury Regulation Section 20.2010-2T(a)(7)(ii) and the latest forms and instructions from the IRS.

 

 

HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!

 

Lorraine New

 

CITE AS: 

LISI Estate Planning Newsletter #2234, (July 17, 2014) at http://www.leimbergservices.com  Copyright 2014 Leimberg Information Services, Inc. (LISI).  Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Written Permission.

 

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